Refco subsidiary (RTS?) freezes customer accounts

Apex,

when you are dealing with criminals, relying on the segregation of customer funds is like wearing a condom with a hole in it.

http://www.bloomberg.com/apps/news?pid=10000087&sid=aPlCJ.Zungl4&refer=top_world_news

Refco Loses Clients and Cash After Chief's Arrest (Update1)

Oct. 13 (Bloomberg) -- Refco Inc. customers are switching to other brokers and pulling money from their trading accounts following the arrest of suspended Chief Executive Officer Phillip J. Bennett on fraud charges.

Jerome Israelov, a wheat trader at the Chicago Board of Trade who uses Refco to match his transactions, will today cut the funds he keeps on account at the broker by at least half, and he said many of his peers are doing the same. Competitors including Chicago-based Peregrine Financial Group Inc. said they have won clients that ditched Refco this week.

***[see link for excised portions of full article]

Back in 1994, Refco was fined $1.25 million for dipping into customer accounts to pay loans, borrowing as much as $123 million from the funds on an ``almost daily basis,'' the Commodity Futures Trading Commission said at the time.

``Whether or not funds are at risk or whatever, there's the attitude of, `why would I allow someone that has done this type of thing to receive income from me?''' said Russ Wasendorf Sr., chairman and CEO of Peregrine. ``The investor is simply saying, `listen, I am going to vote with my feet.'''

*** [see link for full article]

Exodus

A client exodus may halt a three-year surge in revenue at Refco, after sales grew 60 percent and customer funds almost doubled.

*** [see link]

``I usually keep about $100,000 in my account, and I will reduce that to $30,000 or $40,000 or $50,000,'' Israelov said yesterday. He is one of dozens of independent traders, known as locals, who use Refco at futures exchanges in Chicago. ``There are other locals that are also reducing the amount of money they are keeping,'' he said.

Refco in 1994 transferred customer funds from segregated accounts into non-segregated accounts without disclosing the transactions to customers, the CFTC said. Refco, which promoted Bennett to CEO in 1998, agreed to pay the fine, without admitting or denying the allegations.

Futures brokers are required to keep customers' money in accounts separate from their own funds and to report daily to regulators on the amounts held. Because of those safeguards, that money is probably safe, Israelov and Wasendorf said.

*** [see link]


Traders say they aren't taking any chances.

``People don't want to do business with anyone who is fooling around with the numbers,'' said Ray Cahnman, chairman of trading company Transmarket Group in Chicago. Transmarket lost some of its futures traders last year to Refco. ``In this business, you've got to be pristine.''

To contact the reporter on this story:
Ann Saphir in Chicago at asaphir@bloomberg.net.

Last Updated: October 13, 2005 08:04 EDT
 
Quote from jimrockford:




Apex, you have repeatedly put words in my mouth that I never wrote or spoke. I think this demonstrates that nothing you say can be taken seriously. Shame on you. Don't you see that your blatant dishonesty can only hurt the reputation of the Refco brand, which you are trying so hard to defend?
More...

I have not seen him say anything untrue. He is obviously more comfortable keeping accounts at Refco than I and others are, but I have not seen him say anything that is untrue.
 
Quote from areyoukidding?:

maybe that is where the hostility comes from. maybe its the Yanks and how they stink now.
More...

No, not at all.

It has to do with the fact that ET is full of some really naive and incredibly ignorant people that have nothing better to do with their time than to post highly misrepresentative and inflammatory remarks about a situation that they know very little about, or have had any REAL experience with in the past.

The majority of posts that have revolved around the REFCO situation are high reflective of this and the fact that there are a tremendous amount of people on this website that are lazy and refuse to have a full understanding of how an FCM works, what their fiduciary responsibility is, the CME and the ECC's role in this, etc., is incredibly dumbfounding.
 
Quote from Apex Capital:

...

The majority of posts that have revolved around the REFCO situation are high reflective of this and the fact that there are a tremendous amount of people on this website that are lazy and refuse to have a full understanding of how an FCM works, what their fiduciary responsibility is, the CME and the ECC's role in this, etc.
More...

I think many of know how the system works and how the regulatory statements read. .... Still, I think the situation is unfolding in a largely unanticipated extraordinary manner. Again, I would refer anyone that would like to read it to todays front page WSJ article.
 
Quote from prt_systems:

I think many of know how the system works and how the regulatory statements read. .... Still, I think the situation is unfolding in a largely unanticipated extraordinary manner. Again, I would refer anyone that would like to read it to todays front page WSJ article.
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What is it specifically that you believe is unfolding in a largely unanticipated extraordinary manner?

Care to elaborate?
 
Quote from Apex Capital:

What is it specifically that you believe is unfolding in a largely unanticipated extraordinary manner?

Care to elaborate?
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1) yesterday, securities and FCM were uneffected, according to refco.
2) today, securities IS effected.
3) refco has a history of violating the segragated funds.

I understand your peeve about folks getting the various entities confused, etc.. but frankly, I think it's splitting hairs and irrelevant - the same folks sit at the top of it all and call the shots, and evidently those folks are crooks. everything they touch is then questionable.

I believe people are rightfully concerned.
 
Brandonf,

your recent posting stated that you have not seen Apex Capital say anything untrue. This is because you are not paying attention. Re-read this thread and the other postings I will cite from other threads. Apex has been making false statements concealing the risks faced by customers with futures accounts at Refco. Apex has also been making false statements about me, in retaliation for my commentary about Refco.

Apex stated that I had previously "admitted" that I never traded a futures contract in my life. Apex was lying when he said this. The truth is that I have traded futures in the past (although I currently do not trade futures). The truth is that I never made any such admission that I never traded futures in my life. Apex was lying. Apex has told other lies about me. He is lying in retaliation for my criticism of his PR crusade on Refco's behalf.

Apex has also been posting false information about the risks to customers of Refco's futures broker. Apex, for example, has repeatedly posted that segrated customer funds at a futures broker are guaranteed against loss (see his ET postings at 2:05 pm EST and 12:02 pm EST, both on 13 Oct 2005). This is false, as I'm sure you are aware. Neither the exchange, nor anyone else, is obligated to make good funds stolen from segregated customer accounts.

An additional risk is that if other customers, of the clearing broker, experience large uncovered losses, then your own segregated customer funds can be pooled with those of other customers of the clearing broker, and used first to cover the losses of those other customers, and only second to have only the remainder distributed pro rata to all the various customers of the clearing broker, so that you might get back only pennies on the dollar or even nothing at all. Neither the exchange, nor any other party, is under any obligation to make you whole, after your funds are taken to cover uncovered losses incurred by other customers.

Futures accounts are uninsured, and are thus different from securities accounts and bank accounts. Futures accounts have no SIPC, no Santa Claus, no Easter Bunny, no fairy godmother to come and rescue you because you entrusted your funds to a bunch of liars and swindlers.
 
Quote from jimrockford:

Brandonf,

your recent posting stated that you have not seen Apex Capital say anything untrue. This is because you are not paying attention. Re-read this thread and the other postings I will cite from other threads. Apex has been making false statements concealing the risks faced by customers with futures accounts at Refco. Apex has also been making false statements about me, in retaliation for my commentary about Refco.

Apex stated that I had previously "admitted" that I never traded a futures contract in my life. Apex was lying when he said this. The truth is that I have traded futures in the past (although I currently do not trade futures). The truth is that I never made any such admission that I never traded futures in my life. Apex was lying. Apex has told other lies about me. He is lying in retaliation for my criticism of his PR crusade on Refco's behalf.

Apex has also been posting false information about the risks to customers of Refco's futures broker. Apex, for example, has repeatedly posted that segrated customer funds at a futures broker are guaranteed against loss (see his ET postings at 2:05 pm EST and 12:02 pm EST, both on 13 Oct 2005). This is false, as I'm sure you are aware. Neither the exchange, nor anyone else, is obligated to make good funds stolen from segregated customer accounts.

An additional risk is that if other customers, of the clearing broker, experience large uncovered losses, then your own segregated customer funds can be pooled with those of other customers of the clearing broker, and used first to cover the losses of those other customers, and only second to have only the remainder distributed pro rata to all the various customers of the clearing broker, so that you might get back only pennies on the dollar or even nothing at all. Neither the exchange, nor any other party, is under any obligation to make you whole, after your funds are taken to cover uncovered losses incurred by other customers.

Futures accounts are uninsured, and are thus different from securities accounts and bank accounts. Futures accounts have no SIPC, no Santa Claus, no Easter Bunny, no fairy godmother to come and rescue you because you entrusted your funds to a bunch of liars and swindlers.
More...

Rockford;

I've read all of the threads regarding Refco as nearly as I can tell. I think Apex has done a good job of correcting the imbalance created by the MANY emotionally charged and inaccurate statements made regarding the situation. Personally I applaud him for this effort.

Further, I read the posts involving your claims that he "lied" about you. I think you are way off base in these claims. He specifically quoted you.

Finally, you mention some of the risks of a futures account...and to be sure, they are possible risks. The problem is that they are unlikely in this particular case. There doesn't appear to be any customers at Refco with large losses that could create a problem for the other customers.

This is primarily a problem at the Holding company level as I understand it, not one that concerns the regulated futures accounts.

I think Apex is exactly right, that these days people don't READ. And for the small percentage that do READ, they don't COMPREHEND. Had this not been true then we would not have read some of the emotionally charged, inaccurate statements that we have read both here on ET, and all around the internet.

OldTrader
 
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